Nvidia: When It Rains, It Pours

Summary

  • The NVIDIA stock has been on a consistent decline this year as a result of a general risk-off environment in equities, near-term weakness in chip demand, and now regulatory restraints.
  • The U.S. government’s latest restrictions imposed on chip exports to China risk derailing NVIDIA’s bullish narrative, as it implies a potential loss of sales from one of its core markets.
  • The following analysis will discuss the ensuing challenges to NVIDIA’s key data center and automotive segment sales in China, and determine the potential impact on the stock’s near-term performance.
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When it rains, it pours – and that seems to be NVIDIA’s (NASDAQ:NVDA) case recently. The broad-based market selloff this year has already weighed on the NVIDIA stock this year, with valuation multiples contracting violently across the semiconductor sector as investors’ concerns about a structural “bust” after a multi-year boom increase ahead of a looming economic downturn. And NVIDIA’s market value fell another leg lower when its fiscal second quarter results broke a multi-quarter streak of outperformance, validating market worries that its near-term prospects will be shaky. Despite NVIDIA’s earlier confidence that momentum in data center and auto demand will make up for some of the near-term weakness across the consumer and enterprise GPU markets (i.e. gaming and professional visualization segments), the U.S. government’s recent decision to restrict export of certain semiconductor technologies to China – one of NVIDIA’s largest end markets – risks severing the chipmaker’s last respite.

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